Certain jurisdictions have an extensive history of offering credit insurance programs through various financial institutions. In such jurisdictions, individuals typically pay a premium in exchange for insurance coverage that promises to pay insurance as a monthly sum in the event that the insured experiences a hardship brought on by any one of a number of named coverage losses such as death, disability or unemployment. The costs (called a “premium”) for the coverage are usually charged monthly, and are calculated as a percentage of the outstanding balance.
Creditor insurance is usually available as part of a group insurance policy rather than an individual policy, where either the borrower or the financial institution is the owner and beneficiary of the group policy. The borrower is known as the insured. Creditor insurance can be a low-cost, convenient way of providing insurance coverage to individuals. Creditor insurance is distributed through financial institutions, auto dealers, mortgage brokers and lending institutions. Enrollment is typically voluntary and is most often made available at the time you enter your credit granting or leasing agreement.
In most cases, creditor insurance products cover the minimum monthly outstanding balance. Some insurance companies and financial institutions have attempted to enhance the value proposition by offering benefits beyond a minimum monthly benefit or the outstanding credit balance associated with a credit facility. However, no approved creditor insurance product has attempted to provide individuals with the benefit to fund future payment commitments, but instead such products only cover existing debt commitments.
Additionally, the lack of control and ability to customize coverage to suit the individual's situation is a limitation of creditor insurance. Individuals may not fully benefit from a “one size fits all” type product solution. Some individual may recognize a credit risk in other areas beyond credit card debts, and thus the individual may be more concerned with other non-discretional payment obligations or commitments. In part, the inherent lack of choices and concerns with the perceived individual value has lead to some level of scrutiny of these products from various regulatory bodies and individual advocacy groups.